What is Portfolio Management?

Portfolio management’s meaning can be explained as the process of managing individuals’ investments so that they maximise their earnings within a given time horizon. Furthermore, such practices ensure that the capital invested by individuals is not exposed to too much market risk.

The entire process is based on the ability to make sound decisions. Typically, such a decision relates to – achieving a profitable investment mix, allocating assets as per risk and financial goals and diversifying resources to combat capital erosion.

Primarily, portfolio management serves as a SWOT analysis of different investment avenues with investors’ goals against their risk appetite. In turn, it helps to generate substantial earnings and protect such earnings against risks.

Types Of Portfolio Management

The different types of portfolio management can be broadly categorised based on investment strategy and the nature of the investor. Each of these categories is explained below in detail.

1. Active vs. Passive Portfolio Management

Portfolio management can be categorised based on active vs. passive investing, based on the nature of the investment strategy. 

It refers to the method of selecting and managing assets to achieve particular fiscal returns.

2. Discretionary vs. Non-discretionary Management

The difference between discretionary and non-discretionary management stems from the nature of the investor. It identifies with the individual who makes the final investment decision.

Investors must choose the portfolio management style that best suits their needs and temperament. Choosing the right strategy is necessary for optimising returns.